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Budget sessions begins: Maharashtra deficit numbers dent Fadnavis’s economic revival plan

State revenue deficit to grow nearly 3.5 times of the target: BJP fails to keep promise

Written by Sandeep A Ashar | Mumbai | Published: March 10, 2016 3:56:26 am
(LtoR)  Speaker Haribhau Bagde, CM Devendra Fadnavis and Maharashtra Governor C Vidyasagar Rao arrives at the Vidhan Bhavan for the budget session of Maharashtra legislature at Vidhan Bhavan in Mumbai. Express Photo By-Ganesh Shirsekar 09/03/2016 (LtoR) Speaker Haribhau Bagde, CM Devendra Fadnavis and Maharashtra Governor C Vidyasagar Rao arrives at the Vidhan Bhavan for the budget session of Maharashtra legislature at Vidhan Bhavan in Mumbai.(Express Photo By-Ganesh Shirsekar)

The Maharashtra government, which had promised to cut the state’s fiscal deficit and embark on a fiscal consolidation course after coming to power in October 2014, will miss the annual fiscal targets set last year.

The Devendra Fadnavis government had presented its first budget last March, and had promised a ‘deficit-cutting’ drive after blaming the Congress, NCP regime for throwing the state’s economy “off balance”. It had even unveiled a white paper last April in which it blamed the previous government for misdirected subsidies and an unjustified increase in revenue expenditure.

But official numbers now indicate that the deficit or the gap between what revenue receipts and expenditure or spending has widened considerably in 2015-16. While Maharashtra’s finance minister Sudhir Mungantiwar had forecast a revenue deficit of Rs 3,757 crore at the beginning of the year, official figures indicate that it has ballooned to about Rs 13,000 crore. The state could end with a higher revenue deficit (the difference between current revenue receipts and expenditure) of about 0.7 to 0.8 per cent of the Gross State Domestic Product or GSDP against a target of 0.2 per cent of GSDP.

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The consolidated fiscal deficit target has also shot up from the projected Rs 30,733 crore to nearly Rs 34,000 crore, which will overshoot the budgeted target of 1.6 per cent of GSDP.

Going by the recommendations of the 14th Finance Commission, Maharashtra should have reported a revenue surplus in 2014-2015. But the state’s fiscal consolidation path was first hit when the previous Congress, NCP government introduced new subsidies in the power, food security and industrial promotion sectors ahead of the Assembly polls in 2014-15.

Official data also show that this year there has been a deterioration in the state’s finances since 2012-13, when a revenue surplus of Rs 4,211 crore and a fiscal deficit of Rs 13,739 crore was recorded.

In 2014-15, the revenue deficit had jumped to a ten year low of Rs 13,383 crore and the fiscal deficit had risen to an all time high of Rs 37,246 crore.

The paper had also listed BJP’s big revival plan. It had plans to increase capital expenditure and curb non-productive and wasteful revenue expenditure. The leakages in subsidies were to be plugged. The first task was to bring down the revenue deficit to Rs 3757 crore by the end of March 2016 and contain the fiscal deficit at Rs 30,733 crore. But both these targets have been missed, increasing the challenges for the Fadnavis government as it plans to roll out new budget plans on March 18.

Even while reading out his budget speech for 2015-16 last March, Mungantiwar had listed plans “to minimise this deficit through savings by reducing wasteful expenditure and effective revenue recoveries.”

The finance minister, in an interview to The Indian Express last week, had conceded that his deficit-cutting plans had not materialised this year. “It is true that we will miss the annual targets this year. But that is mainly because we spent big sums on relief to farmers in drought-stressed areas. But what worsened the hit was a shortfall in anticipated revenue. We will focus on income side management in the coming year, while continuing efforts to bring down revenue expenditure,” Mungantiwar had said.

But officials said that the government’s decision to abolish Octroi, the local body tax and take a hit for a partial waiver on toll tax, both of which were pre-poll promises, had dented the economy. A senior government official said that the bureaucracy had cautioned the political leadership against these moves. “Our plans were based on a consideration that the Centre would roll out GST from April 1,2016. The delay in the implementation now has certainly burdened the state budget,” Mungantiwar had told The Indian Express.

What has worsened matters is the dip in revenue from sales tax, which contributes to 31% of the state’s total revenue-amid economic downturn and drop in global oil prices. While the state had expected to mop up more than Rs 74,617 crore from sales tax revenues in 2015-16, officials conceded that “it would be a challenge to even meet the target.” Further, the state had anticipated raking in Rs 8000-odd crore through land revenue and premiums on building projects. But official figures now show that less than Rs 2000 crore has so far been realised. The proceeds from Centre’s tax pool and grant-in-aid released to the state were also below target, officials said.

But the comfort for the government may be in the fact that the state’s income or the gross state domestic product has continued to grow despite the negative growth in the agriculture sector, to which the fortunes of 53 per cent of the state’s population is tied to.

The service and the manufacturing sectors have grown this year too despite the slowdown, a senior official said. The state’s GSDP for 2015-16 was projected at Rs 1.88 lakh crore at the start of the year.

This would allow the government to maintain the fiscal deficit as a percentage of GSDP below the 3 per cent mark allowing it elbow room to borrow funds for capital expenditure and servicing of debt in 2016-17. The revenue deficit for 15-16 will end at a deficit of about 0.7 to 0.8 per cent of the GSDP.

The government is now hoping that the correction in oil prices lifts sales tax revenues in 16-17. The Indian Express has already reported that the state has plans to link the royalty it charges for extraction of minor and major mineral to actual transaction values. There is also a plan to announce an amnesty scheme or set up a tribunal to encourage those who are yet to pay up taxes is also being considered. The state’s unrealised tax kitty stands at Rs 39,335 crore.

The government raised nearly Rs 35,000 crore in supplementary grants during the year with Rs 4581 crore demands submitted to the state legislature on Wednesday. The amounts raised in supplementary grants account for nearly 64 per cent of the state’s plan size and has made the Opposition question the government’s fiscal discipline. NCP legislator and former Maharashtra finance minister, Jayant Patil had said on Tuesday that this had dented the credibility of the state’s economy.

Economist Ajit Ranade said that state government may want to look at innovative revenue mobilising sources such as sale of stake in some public sector undertakings for 17-16. “This has been a fiscally challenging year given the several spending compulsions for drought relief and capital expenditure. They (the government) should seriously look at new revenue raising resources.”

Ranade also opined that the BJP government had been hasty in suspending the local body tax (LBT) given the confusion over the roll out of GST.

On a macro economic view, Ranade pointed to an emerging trend where the Centre was adhering to fiscal consolidation, but the state’s were missing their targets.

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